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Why Splunk Went on a Shopping Spree in the Last Year

By Nicholas Rossolillo – Jul 28, 2018 at 10:07AM

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The software company has made several important acquisitions to solidify its upward trajectory.

Big data software provider Splunk (SPLK -1.96%) has made five acquisitions since the beginning of 2017. Mega-mergers and acquisitions get a lot of attention these days, but many of them are made by a struggling company trying to shore up its operations or buy its way to growth (for example, AT&T's pickup of Time Warner).

Splunk's strategy is different: It's all about acquiring other fast-growing companies like itself that complement its strategy.

An artist's rendition of data. Pictures of graphs and charts are displayed being shared all over the world.

Image source: Getty Images.

New partners, complementary markets

As the number of electronic devices continues to increase by the billions every year, the amount of data floating around out there increases even more. For many enterprises, the data its machines, systems, and websites generate is unorganized and unusable. Splunk's cloud-based software changes that, organizing it into a format that's usable and providing insight into what's happening. That capability is a much-needed one in the business world, and it has helped Splunk double its sales many times over the last few years.

SPLK Chart

Data by YCharts.

Splunk isn't alone in its mission to help demystify big data -- other software companies offer a similar service. The Splunk platform, though, is becoming a multi-purpose one, leveraging its capabilities to decipher mass quantities of information into specific functions. One of the ways the company is trying to extend its reach is through strategic acquisitions. It's been a busy year-and-a-half stretch for the San Francisco-based company as it has scooped up five of its smaller peers. 

Company

Purchase Amount

Date Acquired

Description

Drastin

Not disclosed

May 2017

The software improves search-based analytics and intuity on the Splunk platform.

SignalSense

Not disclosed

Sept. 2017

A machine-learning service for data collection and breach detection.

Rocana

Not disclosed

Oct. 2017

Splunk purchased technology and intellectual property from the start-up and retained key members of Rocana's team.

Phantom

$350 million

April 2018

Phantom provides cyber security orchestration, automation, and response (SOAR) services.

VictorOps

$120 million

June 2018

An analytics-driven incident alert and management system for software development and operations.

Chart by author. Data source: Splunk.

What it all adds up to

The first three acquisitions were small and helped expand and improve on Splunk's existing big data analytics platform. The last two purchases are more significant, though, as they both mark expansion into more specific aspects of big data: cybersecurity and DevOps.

With the digital world growing and becoming increasingly integrated with the real world, the cybersecurity industry is also experiencing rapid growth. It's also a complex and fast-changing industry, constantly needing to adapt to new and increasingly complex threats. Many enterprises have found Splunk's data sifting and automation capabilities useful in detecting and responding to cyber attacks, so the company's purchase of Phantom makes sense. Splunk and Phantom want to be the heart of security team's operations, helping them respond to threats faster and addressing the talent shortage in the industry by freeing up time.

The purchase of VictorOps addresses problems software developers and operators are facing as they build and manage new systems. The service uses artificial intelligence to detect and respond to problems, helping DevOps teams resolve issues faster, and to aid organizations in deploying new software faster.

It's too early to tell how these bigger acquisitions will contribute to Splunk's overall growth. The upcoming second-quarter report will be the first with Phantom as part of the Splunk team, and comments on the VictorOps integration will likely wait until the fall as the purchase wasn't made until June. Both look like promising additions, though, as the technologies they utilize to get the job done are rooted in the same ones Splunk used to grow into a $15 billion company. With all parties involved complementary and growing in their own rights, Splunk's shopping spree has a good chance of helping sales momentum continue.

Nicholas Rossolillo and his clients own shares of Splunk. The Motley Fool owns shares of and recommends Splunk. The Motley Fool has a disclosure policy.

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